An update on Apple

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "- By the science of typing

"data-reactid =" 11 "> – By the science of typing

<p class = "web-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Apple Inc. (AAPL) released its financial results for the second quarter of fiscal 2019 earlier this week. "Data-reactid =" 12 "> Apple Inc. (AAPL) released its financial results for the second quarter of fiscal 2019 earlier this week.

For the period, revenues decreased 5% to $ 58 billion (down 3% at constant currencies).

The company had another tough quarter in China, where revenue fell 22 percent (down from 27 percent in the first quarter). Interestingly, management noted that the iPad had regained growth in the region, suggesting that the decline in iPhone sales was probably north of 25%. Although the region accounts for less than 20% of Apple's sales, it has grown from a major contributor to growth in recent years to a headwind for society. For what it's worth, Tim Cook, CEO, has stated that the company feels "much better" [on China] than [it] did 90 days ago. "

Globally, iPhone sales declined by a mean-teen percentage during the current quarter and year (despite the decline, the iPhone accounted for still about 60% of Apple's sales in the first half of 2019). According to management's comments during the call, it would appear that they had to reduce their prices in China to boost demand (and that they will start taking similar measures in India). This testifies to a competitive environment in these regions that looks very different than the one that Apple faces in the domestic market (sales on the American mainland have increased by a small number).

Low revenues were offset by continued growth in services ($ 11.5 billion, up 16% in the quarter). The company now has 390 million paid subscriptions, an increase of 44% over last year (comparable to an active installed base of more than 1.4 billion devices). As stated in the call, management expects to reach half a billion paid subscriptions by next year.

In the first six months of 2019, operating income (EBIT) declined 36% to $ 36.8 billion. Net income decreased by an average percentage to one digit due to a lower tax rate. The number of shares has decreased by more than 7% (to 4,737 million shares), which has resulted in net earnings per share so far.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "As I noted following first quarter results, there was a big question mark on the capital allocation: "data-reactid =" 24 "> As I noticed after the first quarter results, there was a big question mark on the allocation of capital:

"The pace of redemptions slowed significantly in the first quarter, with total expenses amounting to $ 8.8 billion, up from $ 19.1 billion in the prior quarter." To put this in context, redemptions accounted for less than 40% of free cash flow in the quarter, with capital returns (buybacks and dividends) just over 50% of free cash flow … According to the comments of CFO Luca Maestri, it is clear that the quasi -total purchases were made during the first month of the quarter (October), Analysts inquired about the future plan of redemptions during the conference call, but the management did not say anything significant.

The most plausible explanation for this result is that management felt that the quarter was going to be difficult and that it did not want to spend large sums just before a significant drop in share price. In addition, given the timing of the revision of the forecasts (after the end of the quarter), their hands were a bit tied.

That being said, my theory is that management will intensify its activities and make major redemptions in the next quarter (assuming the stock does not rise). And to be clear, I want to say something north of what they spent in the fourth quarter of fiscal year 2018 ($ 19.1 billion), not a slight increase over the 8.8 billions of dollars spent in the last 90 days. If this does not happen, shareholders should begin to question whether management is truly committed to bringing the balance sheet back to a "net cash position over time" (at least a reasonable period of time) … C & # 39; is far from trivial. concern for Apple investors ".

Well, the company did not disappoint: Apple took over and bought $ 23.7 billion worth of shares in the second quarter. Previously, I think that the company has been the subject of fine words by gradually reaching the net cash position. After what we've seen in the last 90 days, I think you can say he's ready to move.

But even in this case, it is difficult for the company to spend fast enough (a good problem to have). Since the beginning of the year, cash flow from operations has grown to $ 38 billion and free cash flow to $ 32 billion. In comparison, the company spent just under $ 40 billion on redemptions and dividends. In the first six months of the year, net liquidity reached less than $ 10 billion. To put this figure in context, Apple still had about $ 113 billion in cash. Even at the pace of the first half of 2019, it will take a long time to achieve a net cash position (a more optimal capital structure).

The story continues